McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 48

{Research} Jim has decided to contribute some equipment he previously used in his sole proprietorship in exchange for a 10 percent profits and capital interest in Fast Choppers LLC. Jim originally paid $200,000 cash for the equipment. Since then, the tax basis in the equipment has been reduced to $100,000 because of tax depreciation, and the fair market value of the equipment is now $150,000.
a. Must Jim recognize any of the potential § 1245 recapture when he contributes the machinery to Fast Choppers { Hint: See § 1245(b)(3 ). }
b. What cost recovery method will Fast Choppers use to depreciate the machinery { Hint: See § 168(i)(7).}
c. If Fast Choppers were to immediately sell the equipment Jim contributed for $150,000, how much gain would Jim recognize and what is its character { Hint: See § 1245 and 704(c).}